How each product works
A term loan pays out once and is repaid on a schedule. A line of credit lets you borrow up to a limit as needed and pay interest on the amount you use.
Term loan. You receive the full amount at the start. You then repay principal and charges in fixed installments over the term, for example weekly or monthly. The payment is predictable. Once paid off, the loan ends. See our term loans page for details.
Business line of credit. You are approved for a limit, say $75,000. You draw only what you need, pay on the drawn balance, and as you repay, the available credit refills. It works like a reusable tool. Read about business lines of credit for specifics.
The core difference is when you know the amount. If you know exactly what you need, a term loan fits. If you do not, a line fits.
Side-by-side comparison
Term loans offer fixed payments and a defined end date. Lines of credit offer flexibility and lower cost when balances are small or short-lived.
| Feature | Term loan | Line of credit |
|---|---|---|
| Funds | One lump sum | Draw as needed up to a limit |
| Repayment | Fixed payments on a schedule | Pay on what you have drawn |
| Reuse | No, new loan needed | Yes, repay and redraw |
| Typical speed with ROI Funder | 1-5 days | 24-72 hours |
| Best for | Defined, one-time projects | Seasonal swings, gaps, recurring costs |
| Main risk | Paying on money you may not need all at once | Easy to overuse without a plan |
Terms, costs and limits vary by funder and by your file. Ask for the total repayment amount, not just a rate.
Match the product to the use
Buying a defined asset or completing a project with a known price points to a term loan. Covering uneven cash flow or unknown timing points to a line of credit.
Use this quick guide:
- Term loan: a build-out, a vehicle, a refinance of other debt, a launch of a new location, a large one-time inventory purchase.
- Line of credit: covering payroll while customers pay slowly, buying inventory in waves, handling repairs, bridging seasonal slow months.
Some owners use both: a term loan for the growth project and a line as a safety net for the daily swings. That works when the combined payments still fit in your cash flow. Our guide on how much of revenue can go to loan payments helps you check.
For deeper reading on the line, see line of credit purpose.
A worked example with round numbers
The lower total cost depends on how long you actually need the money. A line usually wins for short needs, and a term loan for long ones.
This is an illustrative example, not a quote. A landscaper needs $40,000 in March to buy mulch, plants and seasonal labor, and expects to repay it from sales by August.
- With a line of credit, she draws $40,000 in March and pays down as customers pay. By June the balance averages $20,000, and she is done by August. She pays charges only on the balance she carried.
- With a term loan, she receives $40,000 and repays in fixed installments over a set term. She pays the same schedule even if cash arrives early, though some products allow early payoff, so she should ask about it.
For a one-time $40,000 truck purchase repaid over three years, the term loan's steady payment is easier to plan around, and the asset is a single known cost. Ask every funder for the total repayment amount. The true cost depends on fees and structure as much as on the stated rate, as explained in what APR is and how it is calculated.
Costs, fees and qualification
Compare total repayment, fees, draw or maintenance charges and prepayment terms. Qualification depends on time in business, revenue and credit.
Do not compare only the headline rate. Ask each funder:
- What is the total I will repay over the full term?
- Are there origination, draw, maintenance or inactivity fees?
- Is there a penalty or a benefit for paying off early?
- Is the product secured by a lien or a personal guarantee?
- How is the payment collected and how often?
On qualification, ROI Funder considers files with 500+ FICO, 6+ months in business and $20,000+ monthly revenue. Larger limits and lower-cost terms generally go to stronger files. SBA loans can have the lowest cost but take longer; see SBA loans if you can wait.
How ROI Funder helps you compare
ROI Funder matches your file to the funders in our network and shows the true cost, payback period and monthly-equivalent payment of each option before you sign.
We start from what the money will produce. If a $50,000 term loan will lift profit by enough to cover its repayment with room to spare, it is a good use of capital. If the return is unclear, a line you draw on only when needed is safer.
Applying is online and takes a few minutes. It uses a soft credit pull, so it has no impact on your credit score, and you have no obligation to accept an offer. On approved, complete files, which means the application plus 3 months of business bank statements, funds can reach your account the same business day.
Not sure which fits? Our page on which funding fits your business walks through the decision.
Frequently asked questions
Is a line of credit cheaper than a term loan?
It can be when you carry a balance for a short time, since you pay on what you draw. For long-term needs, a term loan may cost less overall. Compare total repayment.
Can I have both a term loan and a line of credit?
Yes, many businesses do. Make sure the combined payments fit your monthly cash flow.
Which is faster to get?
With ROI Funder, lines of credit typically take 24-72 hours and term loans 1-5 days, while approved, complete files can see same-business-day funding on some products.
Which one is better for a business with seasonal sales?
A line of credit usually fits better, because you draw in slow months and repay in busy ones.